The future of India’s Health Insurance and why NHCX will unlock a trillion-dollar value from 1.4 billion Indians?

If you are in a hurry and don’t want to read the entire post, read this article: Health Insurance, Health Insurance claim, healthcare news, financial transactions, - News Healthcare | The Financial Express and take away these points

  • The Health Insurance claim processing cost is going to be INR 10 to 15 from INR 500 (currently)
  • It will make OPD an integral part of the Health Insurance
  • It will allow smaller providers to be part of Cashless Health Insurance
  • It will deflate the current premium by up to 60%

However, if you would like to know in details - you can read the complete post. :slight_smile:

At Y Combinator (YC), one of the questions YC partners often ask is, “What prevented this problem from being solved in the past? Why does this idea not exist yet? Or why did previous teams fail to address the same problem?”

After evaluating thousands of new ideas they have identified a few key traits

  • Unavailability of technology
  • Wrong timing
  • Wrong team, from the perspective of both the problems and the target audience.

I resonate with this approach to evaluating unsolved problems or creating something from scratch. Unfortunately, we have never been asked the same questions yet. :slight_smile:

From day 0, our mission has been to make quality Healthcare affordable for 1.2 billion Indians and that rationality was only driven by the “availability of technology”. And making Health Insurance “Suitable and Affordable” is one of the components.

If you examine insurance penetration among privately voluntary holders (the current health insurance is designed for this target group), it is only around 4 to 5%. Niti Aayog’s report on the current status of insurance highlights that one of the significant reasons for the low adoption of available health insurance is its lack of suitability and affordability.

Before we move forward, did you know that ACKO Health Insurance is 10 to 15% cheaper than all other available health insurance options for the same claim amount simply because they sell directly to users, saving on commission fees? You can verify this on their website. Additionally, I recently had a conversation with the co-founder of India’s largest advisory-based insurance platform, who stated that the nature of the product—health insurance—compelled it to be sold through brokers or advisors. However, when health insurance becomes an integral part of core healthtech, it eliminates complexity. It’s not the nature of the product but rather the manufacturers that create the complexity. Now, let’s delve into the details of the price components and suitability of health insurance.

To understand that we need to understand why NHCX will make Health Insurance affordable and suitable:

To begin, let’s break down all the cost components of health insurance:

The expenses distribution of Insurance of Non-life (Health) insurance*:

2022 (Expenses Components in the % of premium) Non-life Insurance (Health Insurance)
Commission Expenses (%) by IRDAI 7.56 (This has increased over the years)
Operating Expenses (%) by IRDAI 18.52 (This has decreased over the years)
Distribution Expenses (%) 15
Medical Evaluation** (%) 10
Reinsurers Commission (%) 20 (Cap by IRDAI)*
Total without Claim 71.08
Claim (%)* 20
Total with Claim 91.08

Key Points from the above table:

  1. Each cost component inflates the insurance premium paid by users.
  2. The current claim processing cost is approximately INR 500 to 600 due to its paper-based and manual nature.
  3. The Medical evaluation cost is ~INR 1000
  4. According to Milliman, Indian insurers lose INR 30,000 to 50,000 Cr in preventable claims (This is mostly the fraud committed by providers and that is technically paid by policyholders)
  5. Also, according to McKinsey & Company Indian insurers lose INR 50,000 to 70,000 Cr due to inaccurate pricing and risk assessment

However, when we build at the intersection of healthcare and insurance, many cost components either overlap or healthcare data points can be used to eliminate them. For instance, with health records (the “Source of Truth”) of individuals, the medical evaluation cost can be avoided, inaccurate pricing can be rectified, better risk assessment can be achieved, and fraud committed by providers (preventable claims) can be reduced or eliminated.

We will have both - affordability and suitability - answers at the end of this essay, but let’s understand why the current Health Insurance is not suitable for the 1.2 billion Indians.

  • Currently, only 15,000 healthcare providers are part of health insurance’s cashless claim system, and 90% of these providers are located in Zone A and Zone B. The fact is that Zone C, which includes just 500 cashless facilities, contains a population of 1.23 billion people. [You can see this in the image below.]
  • The current health insurance only covers In-Patient Department (IPD) expenses.

One reason many Indians find no value in current health insurance is that it only covers In-Patient Department (IPD) expenses, while Out-Patient Department (OPD) expenses are something individuals encounter at least once a year. The utilization of OPD services eliminates the sunk cost mindset. This is a prime example of how technology can facilitate solutions. As the current claim processing cost is above INR 500, and OPD expenses are typically in the range of INR 200 to 300 from an economic perspective, it doesn’t make sense to include OPD expenses. However, if the claim processing cost is reduced to INR 10 to 15, it opens the door to including OPD expenses in health insurance claims.

Currently, only 15,000 healthcare facilities are part of health insurance’s cashless claim system, and 90% of these are located in Zone A and Zone B, containing only 10% of India’s population. In reality, India has 3.4 million healthcare providers, and only 15,000 are part of health insurance cashless claims. To make health insurance suitable for the rest of Indians, this number must increase. Here too, technology has made solving previously unsolved problems possible. Let’s understand why smaller providers are not part of cashless health insurance and what’s preventing them:

  • Lack of incentive (Being part of the insurance creates a net negative for providers)
  • Claim processing time is between 15 to 30 days (causing cashflow blockage)
  • The demand to manage multiple software to process claims from multiple Insurers (requiring investment and trained personnel)
  • Lack of trust

We can grasp the gravity and complexity of this problem by comparing it with the USA’s health insurance market. According to the Kaiser Family Foundation, 1.6 million healthcare facilities or providers are part of the cashless claim system there.

If this problem has not been solved yet, it is mainly because of the unavailability of technology. However, all these problems are going to be addressed by NHCX and ABDM, which will bring a paradigm shift in India’s health insurance landscape.

  • The claim processing cost is going to be reduced to INR 10 to 15,
  • The claim processing time will be almost real-time,
  • A single source of truth for all stakeholders will eliminate provider fraud, and
  • A single software system will process claims for all insurers, eliminating the need for multiple systems and high technical skills.

Thanks to NHCX now it is possible to offer suitable and affordable Health insurance for the missing middle or lower middle which is a 1,25,000 Cr revenue opportunity. Many of the Health Insurance components that seem trivial or impossible today will feel like no-brainer in another few years.

Before I conclude this essay, what I have written about the future of India’s healthcare and insurance is not just a potential future; it is the only future because we will build that future!

This is a small part of my essay and if you would like to read the full essay, you can read it here: